Opinion
Index 452357/2020
07-30-2021
People of the State of New York, by LETITIA JAMES, Attorney General of the State of New York, Petitioner v. Leasing Expenses Company LLC; NLS EQUIPMENT FINANCE LLC; LEONARD MAZEI; ARIEL SCHACTER; SARA KRIEGER; JAY COHEN; SARA YAEL ELIAS COHEN, as trustee of the June 1, 2018 Cohen GST Trust; DANIELA RACHEL COHEN, as trustee of the June 1, 2018, Cohen GST Trust; MIRIAM ABRAMS, as trustee of the June 1, 2018 Mezei GST Trust; AMY FRIEDMAN, as Trustee of the June 1, 2018 Mezei GST Trust; ANDREW MEZEI, as trustee of the June 1, 2018 Mezei GST Trust; FIELDSTON CAPITAL LLC; JS VENTURES HOLDINGS LLC; and JOHN DOES 1-10, Respondents
For Petitioner Mark Ladov, Assistant Attorney General, Mary Alestra, Special Counsel, Laura Levine, Deputy Bureau Chief, Jane Azia, Bureau Chief, Bureau of Consumer Frauds and Protection, Letitia James, Attorney General of the State of New York For Proposed Intervenor Digital Lending Services U.S. Corp. Richard Slack Esq. and Joshua Glasser Esq. Weil Gotshal & Manges LLP
Unpublished Opinion
For Petitioner Mark Ladov, Assistant Attorney General, Mary Alestra, Special Counsel, Laura Levine, Deputy Bureau Chief, Jane Azia, Bureau Chief, Bureau of Consumer Frauds and Protection, Letitia James, Attorney General of the State of New York
For Proposed Intervenor Digital Lending Services U.S. Corp. Richard Slack Esq. and Joshua Glasser Esq. Weil Gotshal & Manges LLP
LUCY BILLINGS, J.S.C.
Petitioner brought this proceeding alleging that respondents engaged in fraudulent business practices and violated this court's order dated May 29, 2020, in the related proceeding People v. Northern Leasing Sys., Inc., Index Number 450460/2016, 70 Misc.3d 256 (Sup. Ct. NY Co. 2020), aff'd, 193 A.D.3d 67 (1st Dep't 2021), Exhibit A to the Order and Judgment filed in this proceeding March 16, 2021. NYSCEF Doc. No. 133. The Northern Leasing order held that the Northern Leasing respondents had engaged in fraud and "permanently enjoin[ed those] respondents from conducting the business of equipment finance leasing or collection of debts under equipment finance leases and from purchasing, financing, transferring, servicing, or enforcing equipment finance leases." People v. Northern Leasing Sys., Inc., 70 Misc.3d at 279-80, aff'd, 193 A.D.3d 67. In this proceeding, petitioner alleged that respondents were alter egos of the Northern Leasing respondents, engaging in the same fraudulent conduct as those respondents and collecting payments under leases that the Northern Leasing order rescinded. Am. Pet., NYSCEF Doc. No. 51, at 21-22.
This court (Engoron, J.) granted the amended petition in a Decision and Order dated February 25, 2021. NYSCEF Doc. No. 125. In the Order and Judgment filed March 16, 2021, based on that decision, this court permanently enjoined respondents from collecting or attempting to collect payments pursuant to leases that the Northern Leasing order rescinded. The court also permanently enjoined respondents and entities respondents owned, operated, controlled, or created from conducting the business of equipment finance leasing, collecting debts under equipment finance leases, and purchasing, financing, transferring, servicing, or enforcing equipment finance leases. Order and Judgment, NYSCEF Doc. No. 133, at 4 (Mar. 16, 2021). The court further ordered respondents to disgorge funds for use as restitution and rescinded all equipment finance leases that respondents acquired or serviced to the extent that the Northern Leasing order had not already rescinded those leases. Id. at 6-7.
II. DIGITAL LENDING'S MOTION TO INTERVENE AND TO RENEW THE AMENDED PETITION
Digital Lending Services U.S. Corp. loaned money to nonparty NLSEF 2018 LLC, a special purpose vehicle, pursuant to a loan transaction that closed April 30, 2019. Aff. of Karrie Truglia, NYSCEF Doc. No. 161, ¶ 20. The loan was secured by a pool of equipment finance leases that the borrower purchased from respondent NLS Equipment Finance, LLC. Id. ¶ 21. Digital Lending claims this court's order of March 16, 2021, impairs Digital Lending's interests because it rescinds the leases that serve as Digital Lending's collateral and will thwart repayment of its loan. Digital Lending now moves to intervene in this proceeding and, once intervention is granted and Digital Leasing is a party, to renew the opposition to the amended petition, vacate the Order and Judgment as to the leases in which Digital Lending maintains an interest, and then obtain disclosure.
A. Motion to Intervene
"Intervention is liberally allowed by courts, permitting persons to intervene in actions where they have a bona fide interest in an issue involved in that action." Yuppie Puppy Pet Prods., Inc. v. Street Smart Realty, LLC, 77 A.D.3d 197, 201 (1st Dep't 2010). See Ironshore Indem., Inc. v. W & W Glass, LLC, 151 A.D.3d 511, 511 (1st Dep't 2017); 276-8 Pizza Corp. v. Free, 118 A.D.3d 591, 592 (1st Dep't 2014). Digital Lending moves to intervene pursuant to both C.P.L.R. § 1012, as of right, and § 1013, by permission. C.P.L.R. § 1012 provides:
Upon timely motion, any person shall be permitted to intervene in any action:
...
2. when the representation of the person's interest by the parties is or may be inadequate and the person is or may be bound by the judgment; or
3. when the action involves the disposition or distribution of, or the title or a claim for damages for injury to, property and the person may be affected adversely by the judgment.C.P.L.R. § 1013 provides:
Upon timely motion, any person may be permitted to intervene in any action... when the person's claim or defense and the main action have a common question of law or fact. In exercising its discretion, the court shall consider whether the intervention will unduly delay the determination of the action or prejudice the substantial rights of any party.
Even if Digital Lending satisfied the substantive requirements of C.P.L.R. § 1012 or § 1013, a prerequisite of both provisions is that the motion be timely. "In examining the timeliness of the motion, courts do not engage in mere mechanical measurements of time, but consider whether the delay in seeking intervention would cause a delay in resolution of the action or otherwise prejudice a party." Yuppie Puppy Pet Prods., Inc. v. Street Smart Realty, LLC, 77 A.D.3d at 201. As Digital Lending urges, "Intervention can occur at any time, even after judgment for the purpose of taking and perfecting an appeal," Romeo v. New York State Dept. of Educ., 39 A.D.3d 916, 917 (3d Dep't 2007), and is "timely if it is made within a reasonable time after it is clear that intervention is necessary to protect its rights." Fed. Nat'l Mortg. Assn. v. Jean, 189 A.D.3d 1178, 1179 (2d Dep't 2020).
Digital Lending claims its motion is timely because Digital Lending reasonably did not believe the leases that formed its collateral might be rescinded until the court entered the March 2021 order, since neither the petition nor the amended petition in this proceeding sought rescission. Digital Leasing insists that only then did it become aware that its property interest in the collateral leases was at risk.
The history of this proceeding and the prior related proceeding shows Digital Lending had ample warning. First, Digital Lending acknowledges it learned of the Northern Leasing proceeding early in Digital Lending's extensive "due diligence" process for the loan transaction, which began in January 2018. Truglia Aff. ¶ 15. Digital Lending also readily admits that Northern Leasing Systems was servicing the collateral leases while the Northern Leasing proceeding was pending, before its May 2020 order. Petitioners in that proceeding sought rescission of the leases under which Northern Leasing Systems was collecting payments. Therefore Digital Lending was aware that those leases were subject to rescission even before May 2020 and that, if Digital Lending sought to protect its collateral, Digital Lending needed to intervene in that proceeding.
The petition here alleged that respondents Leasing Expenses Company and NLS Equipment Finance were alter egos of the Northern Leasing respondents. Pet., NYSCEF Doc. No. 1, ¶¶ 10, 48. The petition asked the court to "subject NLS Equipment Finance (and its owners, officers, directors and personnel) to the injunction and other relief set forth in the Northern Leasing Decision and Order." Id. ¶ 48. Rescission was part of the "other relief" in the Northern Leasing order. See People v. Northern Leasing Sys., Inc., 70 Misc.3d at 280, aff'd, 193 A.D.3d 67. Thus Digital Lending further knew or had reason to know about the potential rescission of the collateral leases as soon as Digital Lending learned about this proceeding. Matter of HSBC Bank U.S.A., 135 A.D.3d 534, 534 (1st Dep't 2016).
Moreover, upon learning about this proceeding, Digital Lending knew or had reason to know petitioner alleged that NLS Equipment Finance was an alter ego of Northern Leasing Systems. Digital Lending acknowledges it was aware that the Northern Leasing proceeding had rescinded all Northern Leasing Systems' equipment finance leases up to May 29, 2020. Therefore an issue in this proceeding, at minimum, was whether the Northern Leasing order also rescinded collateral leases that respondent NLS Equipment Finance originated before May 29, 2020. Nonetheless, Digital Lending waited until after the court decided this proceeding against respondents and, consequently, against Digital Lending's interests to attempt to intervene. For all these reasons, its motion is untimely. Matter of HSBC Bank U.S.A., 135 A.D.3d at 534. Because the motion is untimely, the court denies Digital Lending's motion to intervene. C.P.L.R. §§ 1012, 1013.
B. Motion for Renewal
Since the court has denied the motion to intervene, Digital Lending's motion to renew the amended petition is moot. Nevertheless, the motion for renewal also fails on its merits.
A motion for renewal must be based on evidence establishing "new facts not offered on the prior motion that would change the prior determination," C.P.L.R. § 2221(e)(2), as well as "reasonable justification" for not offering these facts previously. C.P.L.R. § 2221(e)(3); Omansky v. 160 Chambers St. Owners, Inc., 155 A.D.3d 460, 462 (1st Dep't 2017); Shomron v. Fuks, 147 A.D.3d 685, 687 (1st Dep't 2017); Sarfati v. Palazzolo, 142 A.D.3d 877, 878 (1st Dep't 2016); James v. 1620 Westchester Ave., LLC, 105 A.D.3d 1, 7 (1st Dep't 2013). See Atlas v. Smily, 156 A.D.3d 562, 562 (1st Dep't 2017); 204 Columbia Heights, LLC v. Manheim, 148 A.D.3d 59, 71 (1st Dep't 2017); Jones v. City of New York, 146 A.D.3d 690, 691 (1st Dep't 2017); South Bronx Unite! v. New York City Indus. Dev. Agency, 138 A.D.3d 462, 462-63 (1st Dep't 2016). Upon a motion for renewal seeking consideration of previously available but unsubmitted evidence, the moving party ordinarily must offer a reasonable excuse for the failure to submit that evidence. C.P.L.R. § 2221(e)(3); Omansky v. 160 Chambers St. Owners, Inc., 155 A.D.3d at 462; 204 Columbia Heights, LLC v. Manheim, 148 A.D.3d at 71; Shomron v. Fuks, 147 A.D.3d at 687; Jones v. City of New York, 146 A.D.3d at 691.
The court may grant a motion for renewal in the exercise of the court's discretion, however, even where new evidence was readily available to the moving party when the earlier motion was made, and the only excuse for the failure to furnish that evidence is inadvertence or ignorance, or even where no excuse is offered. Jones v. City of New York, 146 A.D.3d at 691; Hines v, New York City Tr. Auth., 112 A.D.3d 528, 528 (1st Dep't 2013); Onglingswan v. Chase Home Fin., LLC, 104 A.D.3d 543, 544 (1st Dep't 2013); Nassau County v. Metropolitan Transp. Auth., 99 A.D.3d 617, 619 (1st Dep't 2012). Nevertheless, "renewal is not a second chance freely given to parties who have not exercised due diligence in making their first factual presentation." Gibbs v. Kings Harbor Health Servs., LLC, 190 A.D.3d 586, 587 (1st Dep't 2021) (citations omitted).
Digital Lending attempts to distinguish the leases that constitute its collateral from the leases that Northern Leasing Systems originated, which were the subject of the Northern Leasing proceeding. Digital Lending points to its scrutiny of the origination, leasing, and servicing practices by NLS Equipment Finance and its special purpose entity, a variety of incentives and procedures NLS Equipment Finance implemented to prevent fraud, and the high rate of performance under the collateral leases, detailed in the affidavit by Digital Lending's President, Karrie Truglia. Digital Lending insists that the indicia of fraud in the Northern Leasing equipment leases are missing in the collateral leases, and their leasees are making their payments. Digital Lending therefore urges this court to conclude that the collateral leases are not fraudulent and not subject to rescission.
Even had Digital Lending exercised due diligence in timely moving to intervene and presenting this evidence when the court determined the amended petition, whether or not the collateral leases are fraudulent is irrelevant. The Northern Leasing order rescinded equipment finance leases that the Northern Leasing respondents entered between April 11, 2013, and May 29, 2020, and, as set forth above, "enjoin[ed] respondents from conducting the business of equipment finance leasing or collection of debts under equipment finance leases and from purchasing, financing, transferring, servicing, or enforcing equipment finance leases." People v. Northern Leasing Syst., Inc., 70 Misc.3d at 279-80, aff'd, 193 A.D.3d 67. Thus, even if the Northern Leasing order did not rescind the collateral leases under which Northern Leasing Systems was collecting debts, this court's Decision and Order of February 25, 2021, held that respondents here were alter egos of the Northern Leasing respondents. The court found that to allow these alter egos to rebrand and conduct the business that the Northern Leasing order prohibited their predecessors from conducting would "all but obliterate the spirit and purpose underlying [the] previous findings" in the Northern Leasing order. Decision and Order at 2 (Feb. 25, 2021). The business practices of respondents in this proceeding were peripheral issues, as is whether the collateral leases are fraudulent.
None of the new evidence Digital Lending offers through its motion challenges this court's decision that respondents in this proceeding were alter egos of the Northern Leasing respondents, and the restrictions ordered in the Northern Leasing proceeding apply to respondents here. Since NLS Equipment Finance is an alter ego of the Northern Leasing respondents, leases that NLS Equipment Finance originated, if not rescinded by the Northern Leasing order itself, were either rescinded by this court's order of February 25, 2021, applying the Northern Leasing order to NLS Equipment Finance, or entered in violation of the Northern Leasing order.
Digital Lending claims that, if it were a party, it would be entitled to disclosure, but does not indicate it needs disclosure to rebut respondents' identity or status as the Northern Leasing respondents' alter egos. C.P.L.R. § 408; Price v. New York City Bd. of Educ., 51 A.D.3d 277, 293 (1st Dep't 2008); Allocca v. Kelly, 44 A.D.3d 308, 309 (1st Dep't 2007); Stapleton Studios v. City of New York, 7 A.D.3d 274, 275 (1st Dep't 2004); Suit-Kote Corp. v. Rivera, 137 A.D.3d 1361, 1364-65 (3d Dep't 2016). See Roth v. Pakstis, 13 A.D.3d 194, 195 (1st Dep't 2004); People v. Zymurgy, Inc., 233 A.D.2d 194, 194 (1st Dep't 1996). Since none of the new evidence presented or sought through disclosure would change the prior determination, the court also denies the motion for renewal on its merits. C.P.L.R. § 2221(e)(2); Kolchins v. Evolution Markets, Inc., 182 A.D.3d 408, 410 (1st Dep't 2020); Eurotech Constr. Corp. v. Fischetti & Pesce, LLP, 169 A.D.3d 597, 597 (1st Dep't 2019); Redstone v. Herzer, 162 A.D.3d 583, 584 (1st Dep't 2018); Atlas v. Smily, 156 A.D.3d at 562.
III. DIGITAL LENDING'S MOTION TO SEAL ITS DOCUMENTS
Digital Lending separately moves to seal the Credit Agreement, the Receivable Purchase and Sale Agreement, and the Collateral Agreement related to Digital Lending's April 2019 loan to the nonparty special purpose vehicle. Digital Lending filed these documents in support of its motion to intervene as exhibits 1-3 to the Affidavit of Karrie Truglia. NYSCEF Docs. No. 162-64.
The court may seal documents only upon a finding of good cause. 22 N.Y.C.R.R. § 216.1(a); Matter of James Q., 32 N.Y.3d 671, 680 (2019); Wilder v. Fresenius Med. Care Holdings, Inc., 175 A.D.3d 406, 410 (1st Dep't 2019); Maxim Inc. v. Feifer, 145 A.D.3d 516, 517 (1st Dep't 2016); Matter of East 51st St. Crane Collapse Litig., 106 A.D.3d 473, 474 (1st Dep't 2013). The party seeking to seal a court record bears the burden to demonstrate good cause. Maxim Inc. v. Feifer, 145 A.D.3d at 517; Davis v. Nyack Hosp., 130 A.D.3d 455, 456 (1st Dep't 2015); Mosallem v. Berenson, 76 A.D.3d 345, 349 (1st Dep't 2010). Restrictions on access to court records must be narrowly tailored, 22 N.Y.C.R.R. § 216.1(a); Maxim Inc. v. Feifer, 145 A.D.3d at 518; Applehead Pictures LLC v. Perelman, 80 A.D.3d 181, 191 (1st Dep't 2013); Mosallem v. Berenson, 76 A.D.3d at 349-50, because New York law broadly presumes that the public is entitled to access court records. Matter of James Q., 32 N.Y.3d at 680; Wilder v. Fresenius Med. Care Holdings, Inc., 175 A.D.3d at 410; Maxim Inc. v. Feifer, 145 A.D.3d at 517; Mosallem v. Berenson, 76 A.D.3d at 348.
Consequently, the court will limit the public nature of judicial proceedings only when compelling circumstances require such a limitation. Wilder v. Fresenius Med. Care Holdings, Inc., 175 A.D.3d at 410; Maxim Inc. v. Feifer, 145 A.D.3d at 517; Davis v. Nyack Hosp., 130 A.D.3d at 456; Matter of East 51st St. Crane Collapse Litig., 106 A.D.3d at 474. Courts may seal documents such as tax records or documents that reveal trade secrets or information that provides a competitive advantage. Norddeutsche Landesbank Girozentrale v. Tilton, 165 A.D.3d 447, 449 (1st Dep't 2018); Mosallem v. Berenson, 76 A.D.3d at 351. Sealing may be permitted to preserve the confidentiality of materials that reveal a party's internal finances and are of minimal public interest, even if they are not trade secrets. Jetblue Airways Corp. v. Stephenson, 31 Misc.3d 1241(A), 2010 WL 6781684, at *6-7 (Sup. Ct. NY Co. 2010), aff'd, 88 A.D.3d 567 (1st Dep't 2011).
Digital Lending claims good cause to seal the three documents because they include non-public financial terms of negotiated transactions that, if public, likely would undermine Digital Lending's negotiating position in future negotiations with other parties in similar loan transactions, and the public has no interest in these confidential documents. Petitioner maintains that, even if Digital Lending and its borrower have kept these exhibits confidential, they are of public interest because they illustrate aspects of respondents' fraudulent scheme, including Digital Lending's financial support for that fraud, negating any claimed good cause for sealing.
Digital Lending has not specified any sensitive information in the documents Digital Lending seeks to seal and has declined the court's invitation to do so. The documents at issue are not tax returns and do not expose trade secrets. Nor has Digital Lending shown how disclosure of the documents would threaten Digital Lending's competitive advantage. Tellingly, no witness attests that Digital Lending has kept these documents or any of their financial terms confidential or restricted access to them, so that they are actually non-public and akin to trade secrets.
In fact, much of the information in the three documents at issue is indisputably public, such as what Digital Lending requires of its borrowers before lending the $12,000,000 loaned to NLS Equipment Finance's special purpose entity. Moreover, should Digital Lending seek to enforce any of the three agreements, it would have to lay bare those agreements' terms. For all these reasons, Digital Lending has not met its burden to show good cause for sealing the agreements. 22 N.Y.C.R.R. § 216.1(a).
IV. CONCLUSION
In sum, the court denies both Digital Lending Services U.S. Corp.'s motion to intervene and to renew the amended petition and its motion to seal three documents filed in support of the former motion. C.P.L.R. §§ 1012, 1013, 2221(e); 22 N.Y.C.R.R. § 216.1(a). Its remedy for its impaired collateral or the special purpose entity's default in repayment of the loan lies against the special purpose entity, NLS Equipment Finance, LLC, or Northern Leasing Systems, Inc., not petitioner.
The Clerk of the Court shall unseal electronically filed documents numbered 162, 163, and 164 currently sealed. This decision constitutes the court's order.